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The capital investment committee of Cross Continent Trucking Inc is considering two capital investments The estimated income from operations and net cash flows from each investment are

The capital investment committee of Cross Continent Trucking Inc. is considering two capital investments. The estimated income from operations and net cash flows from each investment are as follows:

  Warehouse   Tracking Technology
Year Income from
Operations
Net Cash
Flow
  Income from
Operations
Net Cash
Flow
1 $52,800   $162,000     $111,000   $259,000  
2 52,800   162,000     84,000   219,000  
3 52,800   162,000     42,000   154,000  
4 52,800   162,000     18,000   105,000  
5 52,800   162,000     9,000   73,000  
Total $264,000   $810,000     $264,000   $810,000  

Each project requires an investment of $480,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 15% for purposes of the net present value analysis.

Present Value of $1 at Compound Interest
Year 6% 10% 12% 15% 20%
1 0.943 0.909 0.893 0.870 0.833
2 0.890 0.826 0.797 0.756 0.694
3 0.840 0.751 0.712 0.658 0.579
4 0.792 0.683 0.636 0.572 0.482
5 0.747 0.621 0.567 0.497 0.402
6 0.705 0.564 0.507 0.432 0.335
7 0.665 0.513 0.452 0.376 0.279
8 0.627 0.467 0.404 0.327 0.233
9 0.592 0.424 0.361 0.284 0.194
10 0.558 0.386 0.322 0.247 0.162

Required:

1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place.

  Average Rate of Return
Warehouse %
Tracking Technology %

1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, use the minus sign to indicate a negative net present value.

  Warehouse Tracking Technology
Present value of net cash flow total $ $
Less amount to be invested $ $
Net present value $ $

2. The warehouse has a Select: larger OR smaller  net present value because Select: largerOR smaller cash flows occur earlier in time compared to the tracking technology. Thus, if only one of the two projects can be accepted, the Select:tracking technology OR warehouse would be the more attractive.

May 21 2020 View more View Less

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